Oil prices hit highest in years as markets adjust to looming sanctions on Iran

SINGAPORE: Oil prices clocked up more multi-year highs on Thursday as traders adjusted to the prospects of renewed US sanctions against major crude exporter Iran amid an already tightening market.

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The United States plans to impose new sanctions against Iran, which produces around four per cent of global oil supplies, after abandoning an agreement reached in late 2015 which limited Tehran’s nuclear ambitions in exchange for removing US-Europe sanctions.

Oil prices rose sharply in response to the announced measures.

Brent crude futures, the international benchmark for oil prices, hit their strongest since November 2014 above $77.80 per barrel at 0421 GMT on Thursday.

US West Texas Intermediate (WTI) crude futures also marked a November-2014 high, at $71.75 a barrel at that time.

In China, which is Iran’s single biggest buyer of oil, Shanghai crude futures posted their biggest intra-day rally since their launch in March, rising more than four per cent to a dollar-denominated record of around $73.40 per barrel.

Analysts had little hope that opposition to the US action would prevent sanctions from going ahead.

“Europe and China will not fight against the US sanctions. They will grumble and accept it. There is no one who will realistically choose Iran over the US,” said energy consultancy FGE.

“We believe the previous one million bpd limit for exports (imposed during previous sanctions) will be reimposed. As before, it may take several rounds of reductions to reach target levels,” FGE’s founder and chairman Fereidun Fesharaki wrote in a note.

“Oil prices will certainly move up, and $90-100 per barrel prices may again be on the cards,” Fesharaki said.

US bank Goldman Sachs said renewed sanctions and risks to supplies elsewhere, especially in Venezuela, meant there was a high possibility of higher prices than the bank’s summer Brent price forecast of $82.50 per barrel.

The threat of new sanctions come amid an oil market that has already been tightening due to strong demand, especially in Asia, and as top exporter Saudi Arabia and top producer Russia have led efforts since 2017 to withhold oil supplies to prop up prices.

US crude inventories fell by 2.2 million barrels in the week to May 4, to 433.76 million barrels, according to the Energy Information Administration (EIA), slightly above the 420 million barrels five-year average level.